Marxism, Capitalism and
Mercantilism
David Osterfeld*
Traders Versus the State: Anthropological Approaches
to Unofficial Economics, by Gracia Clark (Boulder,
Colo.: Westview Press, 1988).
T
raders Versus the State: Anthropological Approaches to Unofficial Economics is at once both a frustrating book to read and
a fascinating book to review. One might suppose from its title
that the book deals with conflict between
officials on the
one hand and those engaged in tradingor merchandising on the other.
And one might suppose from reading the subtitle that the book
focuses on the activities of those in the "black" or "informal" markets.
The book, however, does not deal with trade or traders, as such, but
with the activities of the small-scale street vendor. Nor is its focus
solely on the "illegal" or "black market" or "informal sector" activities.
Several of the articles deal specifically with the activities of "licensed
street vendors." The meaning of "unofficial" is made clear in the
introductory chapter by Gracia Clark.
The purpose of the book is to analyze the "petty commodity mode
of production." The term "traders" is restricted to those engaged in
small-scale production and commerce, in particular the street vendors; the term "unofficial" means those economic activities that pose
a threat to the position of the more established, capital-intensive
middle- and upper-class merchants. The activities of the "petty commodity traders" jeopardize the established positions of the "capitalists" or "bourgeoisie." Since the latter tend to control the state, they
are able not only to defend their own position by using the coercive
arm of the state to regulate and control the activities of the petty
traders but, according to Johanna Lessinger (p. 141),they are even
*David Osterfeld is professor of political science at Saint Joseph's College.
The Review of Austrian Economics, Vol. 5 , No. 1 (1991):107-114
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The Review of Austrian Economics, Vol. 5, No. 1
able to enhance their positions by using the state to "appropriate the
often sizeable patches of real estate on which existing markets are
located," thereby facilitating "the process of capitalist development."
Thus, she concludes, "the process of capitalist development has a very
direct role in accentuating class differences," as the bourgeoisie
continually solidify and improve their positions a t the expense of
the poor, whose position deteriorates over time. The origins and
growth of "petty commerce" is traceable, according to Florence
Babb (p. 30), "to the contradictory, and uneven development of
capitalism. . . ." In short, the real enemies of the "traders," who are
actually small scale street vendors, is not so much the state but
the "bourgeoisie" who control the state and use it for their own
purposes. Traders Versus the State would be more accurately entitled: Street Vendors Versus the Middle Class Merchants. A more
appropriate subtitle would be: A Marxist Viewpoint.
The lengths to which one can go in order to blame all evils on
"capitalism" is illustrated in the article on the "Informal Trade Sector
in Tanzania" by Donna Kerner. Kerner notes that President Julius
Nyerere committed Tanzania to a policy of "socialist development" as
early as 1967, required peasants to market their food crops through
"parastatal crop authorities," i.e., state-run marketing boards; introduced a policy of massive price controls; and nationalized the banks
and nearly all businesses and labor unions. These policies resulted
in massive shortages and extensive black market activities.
The government responded to the economic crisis by mandating
that "every able-bodied citizen" be "engaged in productive labor," and
defining "labor" so as to exclude traders or "intermediaries." It then
began a massive campaign of arresting"job1ess loiterers" and sending
them to work on government-owned plantations. Within three
months well over 15,000 "random arrests" had been made. This only
aggravated the shortages, making the economic crisis more severe.
The government responded to the extensive black-market activities by introducing a program known as 'The War Against Economic
Sabotage." The program mobilized the police and military to arrest
nearly everyone engaged in trade as an "enemy of socialism." Eventually, with economic output below 50%, many essential items completely disappearing, and the country on the brink of massive starvation, Tanzania, under pressure from the World Bank and the IMF,
abandoned many of its interventionist policies. The result, according
to Kerner, is that "recent reports indicate that imported and local
goods now flood the government stores." Yet, astonishingly, the Tanzanian tragedy is blamed not on Nyerere's commitment to socialism;
nor is it blamed on the interventionist measures designed to elimi-
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nate private trading. It is blamed on capitalism! Tanzania exists on
"the periphery of international capitalism," she says, and what took
place in that country represents "a distorted form of capitalism."
The Marxist jargon that permeates most of the articles in Traders
Versus the State is irritating, as is the Leninist penchant for referring
to any multinational corporation such a s Purina or Nestle as a
"monopoly." (Although the two notable exceptions are the superb
articles on the economics and strategies of street hawking in Hong
Kong by Josephine and Alan Smart. The articles deal with such
things a s the use of roof-top spotters, armed with walkie-talkies, to
provide hawkers with a sort of early-warning system when the police
are approaching. The articles, it should be noted, are devoid of ideological terminology.) But in order to understand the book's significance it
is first necessary to clarify two distinct approaches or "paradigms" to
political economy: the Marxist and the classical liberal.
Marxism, Liberalism and Power
Nearly all the articles in Traders Versus the State are based on the
Marxist paradigm. There are numerous references to class conflict
and the contradictions of capitalism. Economics is viewed as a system
of power relations, or as a zero-sum game, in which one person's gain
is offset by another's loss. Since both the market and the state are
tools which are used by the wealthy elite to protect and enhance their
own privileged positions by oppressing and exploiting the poorer,
working class, there is no need to distinguish between them. The
market no less than the state is an institution infused with power
relationships.
This, of course, is in direct contrast to the liberal paradigm in
which power relations simply do not exist on the market. The market
is nothing more than the nexus of voluntary exchange. And precisely
because it is voluntary, any exchange must therefore be to the mutual
benefit of all parties concerned; if this were not the case, then the
exchange would not be consummated. Thus, for the liberal, exchange
is a positive-sum process.
Capitalism and Mercantilism
But these two outlooks are not a s incompatible as they may appear
a t first. For the liberal free trade is positive-sum, but coerced trade
is not. While the market is a purely voluntary institution, i t is in the
state-the apparatus of compulsion and control-that power is concentrated. This means that the distinction between the market and
the state, far from being meaningless a s it is for the Marxist, is, for
the liberal, fundamental. Since the Marxist views both the market
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and the state as nothing more than alternative methods by which the
ruling class is able to dominate and exploit the rest of society, he is
unable to distinguish between the market process itself, and the
effect of government restrictions on the market. Arid this, in turn,
means that the Marxist cannot distinguish between what is commonly referred to a s capitalism, or a system of free trade, and
mercantilism, or a system in which the operation of the market i s
impeded by extensive government restrictions for t h e benefit of the
ruling group. It is important to realize that it is not simply that the
Marxist does not distinguish between capitalism and mercantilism.
It is that the Marxist paradigm quite literally renders him incapable
of making such a distinction. As Robert Schenk (1986, p. 676) has put
it:
At the center of neoclassical analysis is mutually advantageous
exchange. At the center of radical [Marxist] analysis are power
relationships in the form of class conflicts. Any framework or paradigm focuses attention on certain features of the subject under
investigation. Imperialism, exploitation and alienation flow readily
from a framework emphasizing power. . . . To extend the framework
of power relationships into socialism would deny the essence of what
radicals want to achieve with socialism-a society without power
relationships. . . . [But] if a theory of socialism is based on a framework other than power relations, another problem will arise. Trying
to integrate such a theory with the core of radical analysis could force
changes in the original paradigm. For example, the radical literature
has rejected theories of market socialism because they need the
concept of voluntary exchange, and voluntary exchange does not fit
well with radical analysis.
In contrast, the strength of the liberal paradigm lies in precisely
its ability to provide a n analytical distinction between voluntarism
and power, market, and government. This distinction has been a t the
center of liberal thought from its very inception. Adam Smith, for
example, wrote his massive Wealth of Nations specifically to refute
the doctrine of mercantilism. Smith argues t h a t under mercantilism
monopolistic privileges were granted to a few favored firms, permitting them to sell a t exorbitant prices, while tariffs were enacted to
keep out foreign competitors. But if a nation were to eliminate
imports it would need to have its own exclusive colonies in order to
obtain raw materials. The power of the state, of course, was ideally
suited to carve out and police the resulting colonial system. Smith
charged that the mercantilist system not only hurt those in the
colonies but the workers in the mother country a s well. Its only
beneficiaries, he says, were "the rich and powerful." Permitting the
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colonists to buy only from merchants in the mother country enabled
those merchants to sell a t monopoly prices in the colonies. The
colonists, therefore, were unable to pay for the administration of
colonial government as well, so the workers in the home-country were
heavily taxed to defray this cost, thereby perpetuating the profits of
the state-favored merchants. The effect of mercantilism, said Smith,
was that "the interest of one little order of men in one country" was
promoted a t the expense of "the interests of all other orders of men
in that country and of all other orders of men in all other countries"
(Smith 1776, p. 578). What Smith urged was the replacement of
mercantilism by free trade. This, of course, would logically entail the
abandonment of the entire colonial empire and Smith did not shrink
from drawing that conclusion.
One finds similar statements in the writings of other early liberal
thinkers including J . B. Say, Charles Comte, and Charles Donoyer in
France (Weinberg 1978; Liggio 1977), John Trenchard and Thomas
Gordon (1965; this is the first reprinting of the Cato Papers since
1755), and Richard Cobden and John Bright (Read 1968) in England,
and William Leggett and the Locofocos (Leggett 1984; Dorfman 1946,
pp. 652-61; Hofstadter 1948, pp. 45-62) a s well a s the quasi-liberal,
John C. Calhoun (1953; see also Hofstadter 1948, pp. 68-92) in
America, to name but a few. Moreover, the distinction between market and government, between voluntarism and power, has remained
a t the core of liberal thought down to the present. For example,
Ludwig von Mises has written (1978, pp. 3-41 that:
Our age is full of serious conflicts of economic interests. But these
conflicts are not inherent in the operation of the unhampered capitalist economy. They are the necessary outcome of government policies interfering with the operation of the market. . . They are brought
about by the fact that mankind has gone back to group privileges and
thereby to a new caste system.
While Mises sees peace a s the necessary precondition for free
trade, mercantilism, he says tersely, is "the philosophy of war."
Similarly, Murray Rothbard (1970, pp. 194-96) draws a sharp contrast between the market principle, personified by individual freedom, mutual harmony and peace, and the state, or "the hegemonic
principle," characterized by "coercion," the '%benefit of one group a t
the expense of another," "caste conflict," and "war." Similarly, Milton
Friedman is fond of drawing attention to the fact that while such
policies a s tariffs are "pro-business," they are "anti-free trade."
The inability of the Marxist paradigm to distinguish between
capitalism and mercantilism has resulted in an unfortunate termino-
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logical confusion which has meant that classical liberals and Marxists have often talked past one another when they were, in fact, in
substantial agreement, at least on certain key issues regarding the
state, such a s its role in generating class conflict and turning trade
into a situation in which one group benefits a t the expense of another.
This is precisely the case with Traders Versus the State. What the
authors of Traders Versus the State condemn a s "capitalism" is nearly
identical to what liberals criticize as "mercantilism."
I n t e r v e n t i o n i s m a n d Social Conflict
The problem, so graphically underscored in Traders Versus the State,
is t h a t in today's world, trade, especially in the Third World, is seldom
free. The significance of Traders Versus the State is to show that in
those societies in which the economy is highly politicized, where what
one gets is determined largely if not solely by the state, one cannot
say that "I am going to live my life in this way and allow others to
live their lives in their own way." Rather, one must say that "In order
to live my life in this way I must first get control of the state and
impose my lifestyle on everyone else." As a result, control of the state
becomes a prerequisite for obtaining any of one's goals. The result is
that what would otherwise be handled by peaceful cooperation between individuals is transformed into bitter conflict between groups
for control of the state. What would otherwise be handled through the
mechanism of voluntary exchange for mutual benefit is turned into
coerced exchange in which one individual or group benefits itself a t
the expense of everyone else.
A vital question is who is likely to get control of the state? As the
articles by Florence Babb on Peru and Barbara Lessinger on India
make clear, it is the wealthy merchants, or "capitalists," who are often
in a position to use their wealth to gain control of the state. But it i s
here that the distinction between capitalism a s a n economic system
and the actions of the so-called "capitalists" is fundamental. The
"capitalists" have little interest in free trade, a s such; their goal is to
make money. In fact, it is because the never-ending threat of competition on the free market renders their position perpetually insecure
that the "capitalists" strive to control the state. Put differently, far
from the market being a n institution of power on a par with the state,
as the Marxists believe, the only reason the "capitalists" seek to
control the state is precisely because the vaunted notion of "market
power" or "economic domination" simply does not exist on the unhampered market. Thus, it is only through control of the state that the
"capitalists" are able to control access to the market, thereby institutionalizing their economic positions.
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But, perhaps ironically, Traders Versus the State also shows that
the state may, and has, been dominated by a very different group.
This group despises trading not for pragmatic but for ideological
reasons, viz., because of its commitment to socialism or communism.
Traders are seen a s useless intermediaries and trade as exploitation
which must be stamped out. The extent to which the war against
trading will be taken by its ideological enemies-including the demolition of markets and the beating and even killing of the traders-is
graphically documented in the articles by Donna Kerner on Tanzania
and Gracia Clark on Ghana.
Conclusion
Two things come through crystal clear in Traders Versus the State.
The first is that regardless of whether the state is controlled by the
wealthy capitalists or the ideological socialists, the result of government economic intervention is the same: massive shortages, extensive black-market activities and social conflict. As Clark says of the
situation in Ghana, "price controls brought chaos" (p. 63). The second
is t h a t when the controls are lifted all three of the problems are
reduced in intensity or even relieved altogether. As Babb has observed, with "the elimination of many price controls" in Tanzania,
"goods now flood the government shops" (p. 51). These are certainly
astonishing conclusions for a book written largely from a Marxist
perspective.
In the final analysis, the authors' candid acknowledgement of the
indispensable role of the free market says far more about the intellectual bankruptcy of Marxian economics than a dozen books on that
topic.
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